Carbon tax can aid climate goals, boost revenue: World Bank

ISLAMABAD: As Pakistan navigates its transition towards higher middle-income status while facing escalating climate challenges, a well-designed carbon taxation framework presents a dual opportunity to meet emissions targets and generate vital revenue, says the World Bank.

The bank in its latest report, “Assessing Carbon Emissions in Pakistani Households:

Implications for Carbon Tax Policy” noted that Pakistan has set ambitious emissions reduction targets through combined domestic and international efforts.

While its Nationally Determined Contributions do not explicitly mention carbon pricing, the National Climate Change Policy (2012)—reaffirmed in 2017 and 2021 revisions—recognises carbon taxes’ potential role, particularly in the energy sector. At the UN Climate Ambition Summit in December 2020, the Prime Minister outlined a decarbonisation vision where, by 2030, 60 per cent of energy would come from renewable sources, 30 per cent of vehicles would be electric, and no new coal plants would be built.

These commitments, alongside the “Ten Billion Tree Tsunami” programme, form Pakistan’s pathway to meeting its climate goals. The National Economic Transformation Plan (2024-2029) further integrates environmental sustainability into development—targeting a 50 per cent cut in greenhouse gas emissions,10 per cent renewable energy in the power mix, and a 13 per cent reduction in income poverty while promoting food security and green economic growth.

While necessary, a carbon pricing instrument is not sufficient on its own. For effectiveness, it must be carefully designed as an element within a comprehensive climate policy package. The implementation generates fiscal incentives, with prices playing a crucial role in aligning economic behaviour. The effectiveness hinges on providing clear, stable price signals that encourage technological upgrades.

A carbon tax offers an opportunity to overhaul environmental taxation broadly, including the politically challenging but necessary phase-out of energy subsidies. Pakistan currently imports nearly one-third of its energy as fossil fuels, contributing significantly to chronic fiscal stress. A carbon tax would signal firms and households to adopt efficiency measures and shift away from fossil fuels, the report noted.

Copyright Business Recorder, 2025